Over just one week in 2023, depositor runs at a few U.S. banks threatened to trigger a worldwide banking crisis. Afterwards, the United States suffered three of the biggest bank failures in the nation’s history; in Europe, Credit Suisse became the largest financial institution to fail since the 2007-2008 Global Financial Crisis. Stunned by this lightning-fast panic, lawmakers, regulators, and academics have called for significant changes to the U.S. financial regulatory framework. Leading among these proposals are calls to improve supervisory oversight of banks, to tighten existing regulations on banks, and to increase deposit insurance limits. But these proposals alone are insufficient to stop the next wave of bank collapses, and they might even exacerbate a central problem contributing to bank runs: the bankers themselves.

Combining insights from banking regulation, corporate enforcement, and insurance law, this Article argues that proposed banking reforms should be paired with a credible sanctions regime imposed upon negligent bankers. Our approach would push oversight duties back into the C-suite through a civil penalty designed to disgorge compensation from a bank executive whose negligence substantially increases the risk of a bank collapse. We defend the theoretical basis for such an approach, including why a civil penalty, rather than criminal punishment, is the best solution to this problem; identify key features of our proposed liability regime, distinguishing it from previous proposals to hold bankers accountable; and then identify and evaluate preliminary implementation considerations for Congress and regulators.

* Kyle Logue is the Douglas A. Kahn Collegiate Professor of Law at the University of Michigan Law School; Will Thomas is an Assistant Professor of Business Law at the University of Michigan Ross School of Business; and Jeffery Zhang is an Assistant Professor of Law at the University of Michigan Law School. The authors thank Harrison Clanton, Jacob Gerszten, and Nathaniel Magrath for excellent research assistance. The authors also thank Jennifer Arlen, Dan Awrey, Albert Choi, Mihailis Diamantis, Anna Gelpern, Jeff Gordon, Daniel Halberstam, Don Herzog, Vic Khanna, Jeremy Kress, Gabe Mendlow, Michael Ohlrogge, Cindy Schipani, and the editors of the Stanford Law Review for insightful comments and suggestions. This Article also benefited from feedback received at the ALEA Annual Conference, MLEA Annual Conference, National Business Law Scholars Conference, Business Law Workshop at the University of Michigan Law School, Corporate & Securities Litigation Workshop at the UCLA School of Law, Law and Economics Seminar at Stanford Law School, and the Faculty Workshop at the Iowa College of Law.